Spending
cuts, tax hikes, reforming the tax code and balancing an out-of-control budget
are becoming more prominent as the race for the GOP presidential nomination
heats up and the deadline for the Congressional Super Committee came and went
without a solution. One issue, though, which has gone largely unmentioned but
underpins almost everything, is the “new progressivity.” The changing nature of
progressivity in the United States has fundamentally impaired and distorted the
collective political decision-making process. No long-run solution can avoid
this profound change.

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Vertical
equity, the precursor to progressivity, held that households (or individuals)
should pay more in taxes as their income increased. Progressivity evolved to
demand that taxes increase in greater proportion than a household’s income. In
other words, progressivity means that as a household’s income increases, taxes should
take a proportionately greater share.

There
is a new formulation of progressivity emerging and it is one that has and will
continue to distort democratic decisions. This new definition of progressivity
divides citizens into two groups: one that contributes to taxes and one that
doesn’t. Put simply, progressivity is no longer about households contributing
proportionately more as their incomes increase, but rather that a vast amount
of households should bear no tax burden while a few households shoulder almost
the entire burden.

Federal
tax data corroborates the emergence of this new progressivity. According to the
Tax Policy Center, in 2011 some 46 percent of Americans will pay no federal income
tax, the single largest and most visible source of revenue for the federal
government.

There
are, however, other taxes such as payroll and corporate income taxes to
consider. According to the same analysis, the bottom 40 percent will earn 12.2
percent of income in 2011 but contribute just 2.8 percent of federal taxes.

Contrast
what the bottom 40 percent contribute to the burden placed on the top 20
percent. In 2011, the top 20 percent will earn 54.6 percent of income but pay
almost 70 percent of total federal taxes. The proportions are even more skewed
for the top 1 percent: 16.8 percent of income while paying 25.6 percent of
federal taxes.

The
redistribution becomes even more pronounced if federal spending is included.
Most federal spending is either focused on lower-income groups (entitlements)
or designed to benefit the population as a whole (e.g. defence). When one
considers the redistributive nature of federal spending coupled with the
asymmetric burden of taxes, it’s clear that a small group of contributors (top
20 percent) carry the burden for the majority of Americans.

This
new progressivity has deep implications for both current and future political
decision-making. In the past, political decisions, whether in support of a new
or expanded program, were based on some semblance of the costs and benefits for
individual households and voters. Specifically, voters weighed the anticipated
benefits of a new or expanded program compared to the expected costs.

If
enough voters were convinced that the benefits accrued to them exceeded the
costs, then the party or candidate supporting the program likely attracted
sufficient votes to win election and implement the proposed initiative. The
reality of elections is admittedly much more complicated and almost always
based on a broad spectrum of issues rather than one single proposal. This
framework, however, allows us to understand the democratic risk that emerges
from the new progressivity.

The
new progressivity means that few households incur any costs associated with new
or expanded programs. Thus the democratic decision for these households is
markedly different than in the past. Now, programs with very little if any
broad benefits can still garner significant support in part because so many
households expect to incur no costs from the introduction or expansion of the
program. Such political calculus means that there is a permanent, and indeed
growing, group of Americans demanding more government irrespective of the efficacy
of the underlying programs.

This
represents a significant barrier to reform. Many of the changes required to
overcome today’s problems — such as the short and long-run deficits, the
mounting debt, and the solvency crisis of Medicare, Medicaid and Social
Security — will be difficult to achieve because of the skewed
burden for government programs from the new progressivity. Simply put, for
better political decisions now and in the future, American households have to
have skin in the game. To do so means fundamentally reforming both the tax
system and many spending programs.

#####

Jason
Clemens director of research at the Canadian-based Macdonald-Laurier Institute
and an adjunct scholar with the Mackinac Center for Public Policy, a research
and educational institute headquartered in Midland, Mich. Permission to reprint
in whole or in part is hereby granted, provided that the author and the Center
are properly cited.